The minimum deposit for most lenders is 5% of the purchase price. On a £200,000 property, that's £10,000. On a £250,000 property, £12,500. It sounds achievable — and it is — but the size of your deposit has a significant effect on the mortgage deals available to you and your monthly payments.
Understanding loan-to-value (LTV)
LTV — loan-to-value — is the ratio of your mortgage to the property's value. If you buy a £200,000 property with a £20,000 deposit, you borrow £180,000. That's 90% LTV.
Lenders use LTV to assess risk. The higher the LTV, the more you're borrowing relative to the property's value, and the bigger the loss if you default and the property has to be sold quickly. That's why 95% LTV mortgages (5% deposit) carry higher interest rates than 90% LTV (10% deposit) — the lender is taking on more risk.
The key deposit thresholds
There are meaningful steps in the mortgage rate market at different LTV levels:
95% LTV (5% deposit) — Available, but rates are at their highest. The market has more limited lenders at this tier.
90% LTV (10% deposit) — A significant step up in product availability and rates. This is where the market opens up considerably.
85% LTV (15% deposit) — Better rates still, and most major lenders compete actively at this tier.
80% LTV (20% deposit) — Excellent rates, wide product range. Worth aiming for if your timeline allows.
What this means in real numbers
On a £225,000 property, here's what different deposit amounts look like:
| Deposit | Amount | LTV | Mortgage | |---------|--------|-----|----------| | 5% | £11,250 | 95% | £213,750 | | 10% | £22,500 | 90% | £202,500 | | 15% | £33,750 | 85% | £191,250 | | 20% | £45,000 | 80% | £180,000 |
The interest rate difference between 95% and 90% LTV has historically been 0.3–0.8 percentage points. On a £202,500 mortgage over 25 years, even a 0.5% rate difference saves around £70 per month and around £8,400 over a 5-year fixed period.
The Lifetime ISA
If you haven't bought a home before, you're entitled to open a Lifetime ISA (LISA). You can save up to £4,000 per year, and the government adds a 25% bonus — up to £1,000 per year. The bonus is paid directly into your LISA and can be used as part of your deposit when you buy your first home.
To use a LISA for a house purchase, the property must cost £450,000 or less and you must be a first-time buyer. You must also have held the LISA for at least 12 months before using it.
The LISA is the closest thing to free money in home buying. If you haven't opened one, open one this week.
Protecting against negative equity
A larger deposit doesn't just save on interest. It also provides a buffer against negative equity — the situation where your property is worth less than your mortgage. If you buy with a 5% deposit and the market dips 10%, you're immediately in negative equity. With a 20% deposit, the market would need to fall more than 20% before you reached that position.
For first-time buyers in Manchester, negative equity is rare in established areas with strong demand. But it's worth understanding the protection a larger deposit provides.
Source of deposit: what lenders ask
Lenders are required to check where your deposit comes from. Acceptable sources include:
- Savings (your own funds, built up over time)
- Gift from a family member (with a signed letter confirming it's a gift, not a loan)
- Help to Buy or Lifetime ISA bonus
- Inheritance
What lenders will question: sudden large deposits with no clear source, loans used as deposit (this is prohibited), or deposits from third parties who expect repayment.
This guide is information only. Dom does not provide financial, mortgage or legal advice. Always consult a qualified mortgage adviser before making mortgage decisions.